After the markets closed, DWDM specialist Infinera (NASDAQ:INFN, news, filings) reported its Q2 earnings, easily trumping analyst expectations. It has been my position for several quarters now that Infinera positioned itself very well during the recession by widening its customer base despite the meager carrier spending at the time. Those efforts are now, perhaps, beginning to tell, as Infinera's Q1 results were also ahead of expectations and the company seems to be accelerating now that carrier spending has returned to more normal levels.
Revenues of $111.4M were up 16% from the first quarter and well above the consensus estimates of about $99.5M and its own guidance of $99-101M. Non-GAAP earnings per share was $0.03, up from a loss of $0.07 in the prior quarter and well ahead of the analyst consensus of a loss of $0.05. Non-GAAP gross margins expanded to 44%, also ahead of their guided range of 41-42%. This quarter there were four customers making up 10% or more of revenue: Level 3 and Global Crossing are known customers of course, but also the still unnamed leading internet content provider as the largest customer and the similarly unnamed top cable MSO. The only disappointing number was in new customer additions, which was just one this quarter - but as I mentioned they have been doing well enough on this count over past quarters, and they say the pipeline for new customers remains healthy.
Looking ahead to Q3, Infinera projected revenues growing to 125-128M, non-GAAP earnings per share of $0.07-0.10, and non-GAAP margins of 45-47%. All of those numbers will force analysts to reset their modeling assumptions, as consensus Q3 guidance was more like $102M and a loss of two cents per share. Level 3's purchasing is expected to grow as a percentage of revenue in the third quarter, suggesting that the two company's relationship remains close.
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